Catching Up On Retirement

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Q: I am 41-years-old and have no retirement plan. I just started a new job that has a 401(k) plan, but the company doesn’t match employee contributions. I make $53,000 a year, so how much should I put into the plan?
— T. Crutcher, Via the Internet

A: Since you say that you have no retirement savings, it’s important that you do all you can to catch up on creating a nest egg for your future. In 2004, the annual 401(k), 403(b), and 457 plan contribution limit was $13,000. The maximum contribution for 2005 is $14,000, and the limit will be $15,000 in 2006. And once you turn 50, you’ll benefit from “catch-up provisions” that allow you to contribute thousands of dollars more toward retirement than you would normally be able to.

You should contribute the maximum amount to your 401(k) plan. At 41, you still have about 20 years to work toward saving for your retirement. You’ll end up saving even more than you’re contributing because the money goes into your account pre-tax, which will lower your tax burden to Uncle Sam.

If you stay employed and maintain contributions to your retirement account for the next 20 years at this level, here’s how you might expect your money to grow: If you invest $15,000 a year and achieve a return of 7.5%, you will have approximately $713,288 in 20 years. While you may not be able to retire on that sum alone, it will go a long way toward establishing a base for your living expenses after you stop working.